Immigration tariffs

One of the keyhole solutions to the many problems raised by immigration is the use of some form of immigration tariff instead of hard immigration quotas. There are many variants of these proposals, but the general focus of these is to address both the welfare objection (immigrants a net fiscal drain because of their use of schools, hospitals, and welfare benefits) and suppression of wages of natives (in so far as a tariff on immigrants could be used to compensate natives who are adversely affected by immigrants). In technical jargon, an immigration tariff could convert a potential Pareto improvement into an actual Pareto improvement. In non-technical jargon, it converts a “big win for immigrants, small loss for some natives” situation to a “win for everybody” situation.

There are a number of proposals that have been made. Below are some of them:

Trade principles indicate that the United States should eliminate its immigration quotas and other nontariff protectionist barriers and use immigration tariffs instead. A tariff could take the form of an income tax that discriminates between natives and immigrants. The analysis takes account of external effects from immigration through the public sector, such as congestion costs and effects on the public treasury. The optimal tariff not only includes a Pigouvian component to internalize external costs, but also reflects optimal-tax considerations and market power.

Below are some objections/concerns/questions about immigration tariffs and the answers to each of them.

Are immigration tariffs citizenship for sale?

Not necessarily. An immigration tariff could be structured as a citizenship fee, but it could also be designed to only provide the right to live, work, and invest, without citizenship rights or access to the welfare state. Further, the tariff may only guarantee a temporary right, renewable after a reasonable period (ten years) with an additional fee, where the renewal is guaranteed subject to having no criminal record and not using the welfare state. Thus, an immigration tariff could be attached to a liberal guest worker program.

What kind of vetting needs to be done for immigrants under an immigration tariffs system?

Below are some things that could be vetted for. (1)-(3) are quite reasonable. (4) and (5) are more controversial.

Criminal background check

Involvement with radical terrorist or extremist organizations

Carrying a dangerous communicable disease

More controversially, basic mental sanity and financial solvency, i.e., the person should not be mentally retarded and should not have become financially insolvent (bankrupt) in the recent past. Note that the ability to pay an immigration tariff and fill out immigration paperwork likely already take care of this.

Even more controversially, a requirement might be instituted that the potential immigrant should be either able-bodied (i.e., capable of physical work) or have some type of skill that can be used to earn money. In particular, potential immigrants who suffer from physical handicaps (blindness, deafness, or missing arms and legs) may need to provide proof of some skill or show that they have a legitimate job offer.

Further, lying about or concealing information about any of the items on the list could be considered adequate grounds for rejecting the potential immigrant and deporting the immigrant later when the lies are discovered.

Would poor potential immigrants really be able to pay immigration tariffs?

Of the 600 million+ people who wish to migrate, not many would have the money upfront to pay a reasonable immigration tariff. The key counter-argument is that thanks to the high place premium of migration, immigrants would gladly pay the immigration tariff if they could borrow against their future earnings. The mechanism could be any of these:

Deferred payments at the government level: The immigration tariff could be structured to offer an option of deferred payment along with taxes for the first few years. Those who choose this deferred payment option would need to provide adequate proof of employment and income as well as provide a sufficient down-payment.

Borrowing from employers: Even if the tariff is required to be paid upfront, potential employers may be willing to shoulder the tariff costs by deducting it against the worker’s future pay periods. This would require the worker to be tied to the employer for the first few months of employment. However, given the high place premium of migration, this will not be for too long.

Credit markets: If immigration tariffs become a reality, it will not take long for credit markets to emerge. Immigrants will receive loans from private lenders to pay immigration tariffs, and these loans will easily be paid back through the higher wages immigrants receive upon migrating. Obviously, there will be some risk of non-repayment of the loan. However, the purpose of credit markets is to accurately measure the risks and calibrate interest rates accordingly. Further, to reduce the risk of non-repayment, a good credit history can be made a precondition for immigrants extending their stay beyond a minimum of 5-10 years. If non-repayment is a problem, immigration tariff loans can be made recourse loans.

Charity and philanthropic payments: Credit markets and potential employers may be hesitant to experiment with providing loans to people with physical and mental disabilities or other problems. They may also be hesitant to venture out with giving loans to people from certain geographical areas that don’t have a positive track record with immigrants. This is where philanthropic organizations can step in by partially or completely subsidizing the immigration tariffs for some immigrants. Considering the benefits of immigration to immigrant-sending countries in addition to the benefits to migrants themselves, this might be a worthwhile “investment” for philanthropies keen on making a lasting reduction in world poverty.

If immigration tariffs are imposed, won’t the majority of illegal immigrants still immigrate illegally?

This depends on the value of the immigration tariff. Clearly, an astronomically high immigration tariff (like a million dollars) would not attract many immigrants. In fact, the United States already has some visa categories that could be viewed as immigration tariffs of a million dollars.

However, a reasonable immigration tariff, comparable to a couple of years of income post-migration, may well be affordable. Consider the following:

Immigrants pay coyotes, smugglers, and document forgers considerable sums of money. For more on this, see coyote fees.

Generally speaking, illegality carries additional costs and risks. The risk of deportation and the absence of proper documentation make it harder to get jobs, find places to stay, get gas and electricity connections, obtain driver’s licenses, and travel freely within the country or visit the home country. Further, legal migration channels allow for more options in terms of borrowing against future earnings (see the previous question). Thus, for the same upfront financial costs, potential immigrants are likely to prefer to comes legally than illegally.

The upshot is that a reasonable immigration tariff that is set at about the level of coyote and smuggler fees will shift most of the current illegal immigration to legal channels and possibly result in a lot of additional immigration by people who were unwilling to immigrate illegally (given the associated costs and risks) but are willing to use legal channels given their greater convenience and greater ease of borrowing against future earnings.

The possibility of illegal migration does suggest that to combat illegal immigration, immigration tariffs for people in countries that can easily cross the border illegally must be set relatively lower than immigration tariffs from other countries. Thus, the United States may need to set lower tariffs for people from Mexico and Canada than for people from China and India. As a compensating feature, people from nearby countries are also likely to avail of a guest worker program and return to their homelands after earning enough money, so this may balance out.

How would an immigration tariff impact existing legal immigration and non-immigrant visas?

Some proponents of immigration tariffs suggest getting rid of many visa categories and other immigration channels and replacing them with the tariff. However, it is not necessary to do things this way, and it is probably not advisable to immediately get rid of existing visa categories.

The immigration tariff could be designed as an additional category and not interfere with existing immigration options and non-immigrant visas, at least in the beginning. It is likely, though, that many existing legal immigrants would prefer to pay the immigration tariff if this promises a longer duration, greater certainty, reduced lawyer fees and costs, and a greater range of options to live, work, and invest. For instance, potential immigrants to the United States who want to have greater freedom to change employers may prefer to pay an immigration tariff rather than get a H1B visa, even if they are eligible for a H1B visa.

Existing non-immigrant visas for students and exchange scholars (F/J in the US), and temporary business/pleasure visitors (B1/B2 in the US) could remain unaffected. However, those who choose to pay immigration tariffs would be able to enroll as students and exchange scholars as well, thus offering potential students two options: enroll for a student or exchange scholar visa (F/J in the US) at a low cost but with the existing restrictions that apply for those visas, OR pay the immigration tariff and enroll for the program of study with the full range of options for work and investment that are available to natives.

If it’s observed that people shift entirely away from certain visa categories, then these categories can be phased out gradually.

Should immigration tariffs be flat or based on country of origin, skill level, and other factors?

Different people have different opinions about the issue. A flat immigration tariff is simplest, but certain factors that can be easily taken into account could be factored in:

Age: This is important since it measures the number of years the person will be paying taxes and contributing to the fiscal coffers. Very old immigrants who are near retirement age may be required to pay a higher immigration tariff.

Skill level: Immigration tariffs could be set somewhat lower for highly skilled workers because of their greater contribution to the economy and society and their greater contribution to the fiscal coffers.

Country of origin: People from nearby countries, who have illegal immigration options, may be charged lower tariffs to create a stronger pressure against illegal immigration. Higher tariffs may be set for people from countries that have hostile relations or have contributed a disproportionate number of terrorists, to compensate for the higher risk and increased security costs of vetting the immigrants. Immigrants from countries that are linguistically and culturally similar may be charged lower tariffs.

More targeted compensation of natives specifically hurt by immigration is possible in theory but creates bad incentives and runs into practical difficulties.

Who gets to set an immigration tariff? Isn’t this just government price-fixing?

The simplest versions of immigration tariffs do involve the government setting a price. However, this is less of an interference with the market than the severe quantity restrictions imposed by the government as well as the bureaucratic selection procedures used to determine who gets to immigrate.

There are more complicated versions that allow resale of and bidding on immigration vouchers. However, such versions may be necessary only if the overall demand for immigration exceeds the capacity of the receiving country to absorb immigrants in a quantitative sense. Current quantities of immigration come nowhere close to this situation.

For instance, if the United States can absorb 100 million immigrants a year and 300 million people are interested in coming in the first year, then the government can release 100 million vouchers in the market at a certain initial price and then allow the buying and selling of the vouchers. The final buyer of the voucher who chooses to use it to immigrate would still need to pass the necessary criminal and terrorist background checks.